Latest Saudi Move Indicates Waning Crude Oil Demand

To celebrate Kate Winslet’s 40th birthday, there is a titanic shift underway as markets rally strongly to start the week. Although Chinese markets are closed until Thursday, the rest of Asia has been rallying like a mad thing as we are back in the realm of ‘bad is good.’ Rising expectations of further stimulus from Japan has supported markets, while waning expectations of a U.S. rate hike (hark, now under 10 percent for October) further endorse today’s risk-on stance. These factors are also providing headwinds for the U.S. dollar, hence a combination of a weaker dollar and ongoing loose monetary policy is egging on the crude market today.

In terms of economic data flow, PMI services data was below consensus for the Eurozone, held back by Germany and Spain but supported by a better-than-expected print from France. The UK also saw a below-consensus print. Tales of retail sales for the Eurozone, however, came in better than expected at +2.3 percent YoY, with a positive YoY trend in place (20 straight months): Related: Shell’s Loss Is Eni’s Gain

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EU retail sales (source: investing.com)

In terms of the U.S., the PMI services print will also be the highlight of the day. As we shuffle into the second week of a new month, it means we shift focus from economic data to energy-specific releases. Hence, tomorrow we get the EIA’s Short Term Energy Outlook, although we have to wait until next Monday (12th) for OPEC’s monthly offering, and Tuesday (13th) for the IEA’s report. Related: Second Oil Auction Goes Much Better For Mexico

Rumors once more are swirling about a potential meeting betwixt Russia and OPEC members to undertake some sort of coordinated effort to stabilize / boost pricing. This, again, seems as far-fetched as the plot for ‘The Martian,’ as Russian output has just reached 10.74 million barrels per day – the highest level since the fall of the Soviet Union. With OPEC unable to form any kind of cohesive message within its 12-member walls, it seems highly unlikely that adding Russia to the mix will help things. Whatsoever.

Staying on the topic of OPEC, and the cartel kingpin of Saudi Arabia has confirmed that it will discount its Medium grade crude to Asia next month by $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales. This reduction in its official selling price (OSP) is the widest discount since February 2012.

Finally, somewhat in contrast to the above news that Saudi is discounting its oil into Asia is the fact that VLCC rates have risen above $100,000 a day for the first time since 2008, driven by a surge in demand from China. We have spoken regularly here how our #ClipperData show Chinese waterborne imports have been super-strong this year, up 13 percent through the first nine months of this year versus 2014.

The discounting by Saudi of its oil for November is an indication of low demand, as well as its desire to compete for market share. This is in contrast to the signals of strong demand we are getting from China, and only further adds to the confusion in the current crude complex, and the ever-changing balance between supply and demand. Related: Africa Banking On Nuclear Power